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Fuel Freedom: Fuels should be taxed in a fair and equitable way

The US tax code taxes diesel fuel at one rate and taxes the ultra clean burning and domestically produced liquified natural gas at a rate that is 70% higher.  This should be corrected! 

The United States is now the largest producer of natural gas in the world. This is a positive development and will help us reliably and inexpensively heat our homes, power our economy, and fuel our vehicles. Moreover, it will reduce our dependence on unreliable foreign sources of energy.

Despite this good news, there is a bit of bad news. When natural gas is liquified and used as a transpiration fuel, our tax policy puts it at a huge disadvantage as compared to diesel fuel. We tax diesel at one rate and then tax the ultra clean burning and domestically produced liquified natural gas (LNG) at a rate that is 70% higher than diesel fuel based on its energy content. This is counter productive and disincentivizes the use of a reliable domestic energy resource.

Our tax policy should not be picking winners and losers and it shouldn’t be favoring one source of energy while penalizing another. Yet, that is precisely what the current tax code does to LNG and propane.

Some in the House and the Senate want to reduce the taxes on LNG and propane so that they are equalized with the taxes on diesel fuel. This amounts to a tax cut for LNG and propane so that it is taxed a the same rate as diesel fuel based on its energy content, rather than at substantially higher rates. We strongly support such a tax cut!

The Senate plan to extend federal funding for transportation projects into the summer of 2015 includes this important tax fairness and equalization provision. It is also an important economic growth provision. While we cannot support every measure within the Senate highway bill, this is a provision that we believe should be included in the final bill. It is fair. And it will help the economy grow because it will remove an arbitrary tax penalty and a counterproductive tax disincentive on an important homegrown energy resource.

We call upon the House to compromise by including this tax reduction and tax fairness provision in their highway transportation bill. We also call upon Senate Majority Leader Harry Reid to be willing to compromise with the House on the final bill and allow the legislative process to proceed. In our estimation, the House transportation bill has a great deal to recommend it. But by taking the strengths of the House bill and the Senate bill, we will end up with a better outcome.